Establishing businesses is in the Swiss DNA. With 99% of all companies being SMEs or family businesses, they are the backbone of the Swiss economy and employ two-thirds of its workforce. However, Switzerland lags behind in entrepreneurship education for the youth and a start-up culture. As start-ups are crucial drivers of innovation and prosperity, Switzerland must do more to facilitate an innovative and globally competitive start-up scene by further dismantling regulatory barriers and integrating entrepreneurship more strongly in the education curricula. Companies can do their part by creating a culture of innovation, actively encouraging and learning from mistakes and failures and cooperating more closely with start-ups.

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Here are what policymakers and businesses need to do to power up the entrepreneurial spirit and start-ups in Switzerland to drive innovation and the country’s growth in turn.

Policymakers

    Make entrepreneurial thinking and expertise part of the school curriculum

    Make entrepreneurial thinking and expertise part of the school curriculum

    The comparatively low level of start-up activity in Switzerland probably reflects the population’s below-average enthusiasm for self-employment. Switzerland has low rates of unemployment and high salaries. School-leavers and university graduates have a wide range of well-paid alternatives to embarking on the financially risky course of starting their own business, so start-ups represent a substantial opportunity cost. However, youth entrepreneurship also attracts little attention. Schools do little to excite students about business in general terms, let alone teach them about setting up a business, and it is not until they get to university that students learn about starting and managing a business and practical economics. This needs to change. Teaching economics, entrepreneurial thinking, and basic business and digital skills should be part of the school curriculum, with teaching staff receiving the appropriate training and support to do this. In cooperation with the private sector, schools could also teach more about start-ups, perhaps as part of special project weeks or placements within start-ups.

    Consider alternatives to wealth tax

    Consider alternatives to wealth tax

    Compared with most other countries, Switzerland has relatively high rates of wealth tax on company assets rather than profits and these are not only economically questionable, but also particularly problematic for start-ups. The Swiss tax system uses market value to quantify a company’s share capital, but non-listed companies often do not have a market value that can be used for this purpose. In such cases, many canton-level tax authorities – including Zurich’s – have until recently used the capital acquired through financing rounds as the basis for this calculation. The value of a financing round represents the potential value that investors hope to achieve, so a start-up’s share value can rise rapidly – on paper, at least – even when there is no market for its shares and it makes no profits. In the past some individuals starting their own business have had to pay high taxes on these ‘virtual assets’, something they could ill afford whilst earnings remained low.

    The canton of Zurich has recently alleviated the situation to some extent by setting aside the financing round value once the company has ‘representative business results’, but this is unlikely to solve the problem. The precise definition of ‘representative business results’ remains unclear and these companies are still disadvantaged in international competition.

    Facebook co-founder Mark Zuckerberg himself would have had to pay CHF 264 million in tax if he had set up Facebook in Zurich, even with a five-year transitional period. As long as high wealth taxes remain in place, it seems clear that the next Facebook will not be set up in Switzerland – or, if it is, will rapidly move elsewhere. It is therefore time for politicians to consider alternatives to wealth tax. Options such as death duties and gift tax or consumer taxes, such as VAT, distort the economy much less.

    Change the way employee shares are taxed

    Change the way employee shares are taxed

    As well as being taxed on their ‘virtual assets’, start-ups also face problems with the way employee shares are taxed. In their early days, most start-ups pay their highly skilled staff relatively low salaries but top them up with employee shares. The tax system treats employee shares as part of remuneration and taxes them as income even though these employees are actually bearing part of the company’s risk. And where a start-up has a very high taxable value because investors are ‘banking’ on it becoming a commercial success, employees have no option but to pay a large part of their relatively modest salaries in tax. The Swiss Parliament tackled this issue in 2018, tasking the Swiss Federal Council with framing legislation, but there has been little progress since then and the Federal Council has expressed concern about definitions of what precisely constitutes a start-up. It would be worthwhile considering statutory arrangements for all non-listed companies, such as tax breaks for a specified period.

Business

    Promote an entrepreneurial mindset at all levels of management

    Promote an entrepreneurial mindset at all levels of management

    Every company, large or small, should aim to create a start-up culture. Any business that wants to be innovative in the long term relies on innovative staff – and that means not just creating and promoting awareness of the importance of new ideas, but also setting a good example of an entrepreneurial mindset. Any employee coming up with an idea should be able to take it to their line manager and count on as much support as possible. This requires a flat company hierarchy and a flexible corporate culture. One way of achieving this is to spin- off separate business units from the main company and give them their own structure so that they can experiment like a start-up.

    Another fruitful approach is specific initiatives to promote competition between employees for new ideas, such as regular innovation initiatives. ‘Hackathons’ are one well-known way of doing this: these are high-speed programming competitions requiring employees to develop apps and software that are then judged, with prizes awarded to the best solutions. Companies could run competitions of this kind outside the tech area, too, and encourage employees across the board to develop innovative ideas in such areas as enhancing the business model, streamlining internal procedures and processes, organising cooperation or producing goods and services.

    Increase risk appetite and a genuine culture of tolerating mistakes

    Increase risk appetite and a genuine culture of tolerating mistakes

    Promoting innovation needs to go hand in hand with creating a positive culture of tolerating mistakes. Errors and failures must be permitted and accepted so that employees have the courage to put forward ideas and suggestions. Every innovative company makes mistakes: it could be argued that you are not a real entrepreneur until your business has gone bust at least once. Of course, mistakes should not be idealised: the important thing is to create a learning culture around them. Many companies often do exactly the opposite, focusing on planning and monitoring and taking a ‘carrot and stick’ approach. And this focus often lies primarily with managers. Where management takes a negative view of mistakes, employees are unlikely to experiment and take risks. Tolerance of mistakes and failures must therefore form part of the culture of the whole company and all levels of management. Managers who tackle mistakes and failures openly and discuss them within the team, rather than penalising them, ultimately create an environment in which employees can be confident and adopt a risk-taking mindset. Concepts such as ‘fuck-up parties’, in which employees talk openly about failed projects and what they have learned from them, can also be helpful. In a relaxed environment of this kind, audiences can, indeed, be inspired by failure, contributing to a company that is better able to handle mistakes.

    Expand cooperation with start-ups

    Expand cooperation with start-ups

    Alongside creating a start-up culture and a climate of genuine tolerance of mistakes and failure, companies should also cooperate more with start-ups. Some large companies are already doing this, but cooperation arrangements often prove more difficult than companies imagine, pitting a highly agile young business against an often hierarchical large entity with clearly structured processes. Hardly surprising, this makes cooperation difficult, so businesses need to think carefully and in detail about cooperating with a start-up, and plan accordingly.

    The nature of the partnership will underpin success and it is particularly urgent to increase cooperation in the area of Industry 4.0: many companies lack the necessary know-how to adapt to specific digital technologies such as machine learning, sensor technology and virtual reality.

    Create ecosystems

    Create ecosystems

    Although cooperation with start-ups is important, it is sensible for many companies to go further and create what might be termed ‘ecosystems’. These can forge new and profitable links with all market participants. Alongside cooperation arrangements with start-ups and joint ventures, such ecosystems could also include approaches such as crowdsourcing, platform economies and cooperation with universities. The aim is to create added value for customers on a shared and cross-sector basis. Many companies can no longer produce everything themselves because they lack the specific know-how or time, but shared ‘communities’ comprising a range of partners could create value through well-developed models for collaboration and competition. And technology transfer could support research institutions, universities and start-ups in the corporate sector.

    The Lausanne Federal Institute of Technology (EPFL) is already a hub for exemplary cooperation of this kind, including its Innovation Park, which is based in Silicon Valley and promotes cooperation between the university and start-ups, and its Campus Biotech, an ecosystem that supports interdisciplinary approaches in the areas of neurosciences and bioengineering. Ecosystems of this kind have made the region around Lake Geneva one of the world’s leading research centres.

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Jackie Hess
Jackie Hess

Managing Partner, Deloitte Private

+41 58 279 6312

Karine Szegedi
Karine Szegedi

Consumer Industry Leader

+41 58 279 8258